Mechanical engineering sector expecting a production plus of three percent in real terms in 2018
In Germany, the largest sales market, all the signs point to expansion in 2018
Screenshot CNBC, Carl Martin Welcker / @ VDMA 2017
On the domestic market, all signs are pointing to expansion
Positive indicators for USA and Europe
Growth in China will begin to slow again
The current economic upswing will continue at the same pace in 2018 according to the VDMA economists. For next year, VDMA is therefore anticipating production growth in mechanical and plant engineering of three percent in real terms. In July, the association upgraded its forecast for the current year to an increase of three percent in real terms, as compared to the previous year. “We are definitely on the right track here. In the first seven months of 2017, mechanical and plant engineering companies recorded a production growth of 2.9 percent,” says VDMA Chief Economist Dr. Ralph Wiechers. “Political and economic crises as well as other necessary structural reforms have prevented a more significant economic recovery in many countries. The growth in 2018 will therefore not gain more momentum, but instead will simply shift regionally.”
In Germany, the largest sales market, all the signs point to expansion in 2018. The capacities in the industry have not been this stretched since 2008 and the number of customer complaints about capacity bottlenecks for machines and systems is multiplying. “This situation should be a catalyst to kick-start the urgently required investments in machinery and equipment,” says Wiechers.
In the USA, the largest export market for German mechanical engineering, the economy is already performing noticeably better this year compared to the previous year. The investments in machinery and equipment have increased noticeably, and the export of German machinery to the USA has increased by a nominal 7 percent in the first six months of the year. There may even be a slight acceleration of investments in 2018 in light of the improved sales and return expectations. “However, there are still more uncertainties than there are certainties in terms of the prospective government policies of the US President, Donald Trump. We are therefore not expecting an additional acceleration of German exports, but rather continued solid growth, and that provided the repeated calls for protectionism do not manifest themselves in concrete action,” says Wiechers.
In den ersten sieben Monaten 2017 haben die Maschinen- und Anlagenbauer ein Produktionswachstum von 2,9 Prozent erreicht.
The third-largest single market, China, has also recorded a high rate of growth in the current year. Machine exports increased by an impressive, nominal 23 percent in the first half of the year. However, due to the base effect, this rate is untenable. For 2018, VDMA is expecting a growth in exports in the mid single-digit percentage range. Considering the size of the market – 10 percent of German machine exports, or just under 8 percent of German production, go to China – the economy across the whole mechanical engineering sector in Germany will experience a loss of momentum. “This will have to be compensated by an increase in exports to other markets, something we believe is also possible,” says the VDMA Chief Economist.
Exports to EU partner countries have also increased in the first six months of the year. The reported plus of two percent can even be confirmed, as there are regularly significant late reports submitted after several months of delay. Exports to the United Kingdom have recently decreased (down 4 percent in the first six months). “For 2018, we expect a growth rate in the mid single-digit range for most EU countries. The economy in the EU has clearly picked up pace and there is a backlog of investments, particularly in the euro zone. The incoming orders from euro partner countries clearly point to a course of expansion, with the first seven months of the year recording a plus of 11 percent,” says Wiechers.
The group of developing and emerging nations (excluding China) also recorded an export increase of a nominal 5 percent in the first six months of 2017. “Here, we can see further potential for growth in 2018 for the majority of these countries. This includes Brazil, Russia and India, for example. The situation is less clear in Turkey, Mexico and Iran. A lot is dependent on future political activities,” the VDMA Chief Economist concludes.
The Mechanical Engineering Industry Association (VDMA) represents over 3,200 mostly medium-sized companies in the mechanical and plant engineering sector. With over one million employees and sales amounting to approximately 220 billion euros (2016), the sector is the largest industrial employer in Germany and one of the leading German industrial sectors.